A Critical Perspective On Development Economics

Category: Latin America

As the inaugural issue of Pandemic Discourses goes online, 4.7 million cases of COVID-19 and nearly 320,000 deaths have been recorded by the World Health Organization. The waves of cases and deaths have been closely followed by mounting economic losses, leaving governments, communities, and individuals scrambling to find appropriate responses. Yet, even in this uniquely global moment, popular discourse around the pandemic has remained trapped within familiar terms.

Media coverage has to a large extent focused on experiences of the United States and Europe. The frameworks developed to respond to the pandemic have also been US/Euro-centric, frequently inward-looking and isolationist, paying scant attention to expertise, knowledge, and capacities elsewhere. The experiences of other parts of the world, even when taken into account, often serve to cement prior prejudices. In response to this lopsided discussion, Pandemic Discourses aims to foster a more expansive dialogue that encompasses voices from the global South, including China, India, and beyond.Read More »

Brazil is in a crisis again. The COVID-19 pandemic has spread across the country and political incompetence has led to a massive health crisis. Investment outflows have been rapid and the Brazilian real has depreciated dramatically. The Brazilian economy is set to contract again after three years of weak positive growth.

Brazil’s development bank Banco Nacional de Desenvolvimento Econômico e Social (BNDES) has announced some measures to deal with the financial instability caused by the COVID-19 pandemic. However, these measures are being criticised for being insufficient. Rather than being a temporary policy mistake that can be corrected easily, BNDES’ passive response is linked to the bank’s structural retreat from the economy over the past five years.

During the 2000s, BNDESwasacclaimedas a catalyst ofthe country’s economic growth. Globally, developing countries such as Indonesiasaw the rise of BNDES as something favourableand sought to mobilise their own national development banks.

The eclipse of neoliberalism in 2000s coincided with the so-called commodity ‘super cycle’ that lasted between 2002 and 2012. In search of a new model, resource-rich states began to articulate resource nationalismas a development strategy. While ownership and control of minerals and hydrocarbons are intricately tied to claims of state sovereignty and exercise of political authority in development policy, resource nationalism can also be understood in terms of a power struggle between host states and global hegemons in their quest to secure resources for their own industrial needs. Hence, contemporary natural resource governance is reflective of the wider ideological return of the state despite two decades of reforms promoting market liberalization and privatization. Resource nationalism is a vital expression of the renewal of stateagencyamidst high external constraints imposed upon resource-rich countries.

Resource Nationalism as a State-led Development Strategy

It is not a coincidence that resource nationalism returned in mainstream political debates at the same time as emerging powers designed new industrial policies aimed at recalibrating state-market relations in favour of the former. With extraordinary high prices and rising demands for natural resources from China, domestic political configurations in resource economies appear to move towards reforms aimed at (1) capturing and maximising windfall profits amidst a boom, (2) extending the role of state in commodity production through a renewed role for state-owned enterprises, and (3) renegotiating the terms of contracts with multinational mining capital.

These policies are emblematic of a wider trend: the growing importance of state stewardship for industrial transformation in an era of cross-border production networks governed by global lead firms.Despite the rhetoric on economic globalization, the role of the state remains prevalent as observed in the number of state-owned enterprises, the significant expenditure on industrial policy, and the array of government-business partnerships in East Asia and beyond. State interventions are reconfigured not simply to reinforce the residual statist tendencies, but to actively construct new comparative advantages and build strong ties with economic elites who can compete in a globalized international economy. Perhaps, more importantly, political elites are forging new social contracts with ordinary citizens to enhance the legitimacy of the state, whether in terms of actively supporting social welfare programmes (as in the case of many conditional cash transfers in Latin America), or by creating new avenues to engage with marginalised groups (for example, through participatory institutions and FPIC process).

Amidst the resource bonanza, development plans were set in motion centred around the exploitation of natural resources. For example, Brazil launched a programme focussed on heavy investments in the capital goods sector, notably in oil, gas and ship-building industries.

Several Latin American countries also introduced new royalty fees and export taxes aimed at capitalising on high prices. Table 1 details the increasing role of natural resource rents in state revenues over the past twenty years.

Table 1: Public Revenues from non-renewable natural resources in percentages of GDP

Alongside attempts at adding value in mining and hydrocarbons, Latin American governments faced redistributive pressures from their political base. ‘Compensatory states’ justified their resource extraction strategy as a necessary step for further income distribution and revitalization of manufacturing. While political citizenship in post-neoliberal Latin America is increasingly defined by redistributive politics, it also emphasised recognition and identity politics as a central feature of a contentious state-society relationship.

The Limits of the Resource Bonanza

It is now a widely held view that the Left-of-Centre governments successfully reduced poverty and extreme poverty (see Table 2), and although slow, inequality has begun to taper off (Figure 1). However, the data also confirm the fragility of the social achievements of Latin American governments – as the bonanza ended, so did the gains from poverty reduction. This points to several important shortcomings of resource-based strategies.

Most conspicuously, poverty gains may have created a trade off in making vital investments in the productive economy. Finite domestic revenues have been subject to immense political competition for rent-seeking, and without a coherent industrial strategy, an export-led growth model based on commodities are likely to be fragile and is vulnerable from price swings.

This, then, leads to a gloomy conclusion. Resource-rich states, without the institutional capacity to design a productivist strategy to diversify their export base and to set out an ambitious multi-year development plan to upgrade their industrial sectors, are likely to suffer from the vicissitudes of international commodity markets. At worst, those without political consensus over governance – Venezuela under Maduro being the emblematic case – are likely to waste the opportunities for development through their strategic mining sectors. The broader lesson, I suspect, is thatinstitutional preconditions and pro-industrial policy coalitionsare central to the success of developing countries advancing new strategies in an increasingly globalized international economy. Crucially, whenever crisis and uncertainty appear, the state as a stabilizing force becomes more prescient than ever.

Jewellord (Jojo) Nem Singh is an Assistant Professor at the Institute of Political Science, Leiden University working on the political economy of development and democracy in Latin America and East Asia. He tweets at @jnemsingh.

In his acclaimed poem “America” from 1956, Allen Ginsberg warned about the new vices of American society. Beyond the clear demonization of communist ideals, the star of the beat generation warned about the growing influence of the media on the thinking of individuals.

With globalization, the commodity fetishism disguised as the American dream entered not only the minds of the citizens of the United States but the rest of the globe. In addition, with the financialization of the economy, the debt culture also surpassed the American borders, reaching the countries of the Global South.

There is no day when the media does not bombard us with advertisements that promote a consumer culture, inciting us to acquire goods that we cannot afford with our income. This is where credit plays the role of a “savior entity” through which we can satisfy our deepest desires. However, unlike the developed countries, which have high levels of access to financial services, the underdeveloped countries are subject to a subordinated financialization that limits the possibilities of households and non-financial companies of acquiring a loan and, consequently, complicates the satisfaction of our consumerist spirit and the development of the productive sphere. The notion of subordinated financialization was first proposed by Jeff Powell (2013) to designate the specific way in which financialization manifests itself in underdeveloped economies. The level of access to financial services that a country has is known as financial inclusion, however, in the case of Mexico, this level is so low that we are facing financial exclusion.Read More »

What drives economic development? What is the nature of the external constraints that developing economies face? What is the role of industrial policy and the central banks in the development process? These were the core questions that were posed in the recent webinar series on Development in the 21st Century, organized by the Economic Development working group of the Young Scholars Initiative (YSI). These four meetings were particularly oriented towards examining notions such as distribution, patterns of specialization, industrial policies and balance of payment constraints. The discussion of such phenomena is especially important in a context of deep academic divides regarding the drivers of economic development.

Following the tradition of the Latin American structuralist school, the meetings placed special emphasis on the inherent challenges of conditions associated with being in the periphery when the problem of development is faced. During the meetings, processes of economic integration that perpetuate asymmetric economic relations of the center-periphery type were examined, as well as the role played by public institutions, e.g. central banks, in the development of industrial economies.Read More »

The Argentinian government has requested financial assistance from the IMF to tackle the consequences of a serious currency crisis. Last Wednesday, the government emphatically announced the new terms of such an agreement. However, unpacking the terms of those agreements and the current situation reveals serious concerns about the country’s future .

A few months back (see here), we provided an analysis of the current Argentinian crisis, highlighting the excessive vulnerability of the economy produced by the abrupt financial deregulation carried out by Macri’s administration. Three aspects in particular threatened the country’s future prospects: the deregulation of foreign exchange that failed to stop capital flight, a boom in foreign debt (at a record level among emerging market economies) and the promotion of speculative capital inflows to carry trade (buying financial instruments issued by the Central Bank called LEBAC in order to pursue carry trade operations).

When international conditions worsened and the carry trade circuit came to an end, the “LEBAC bubble” exploded and produced a tremendous foreign exchange crisis that shook the Argentine economy, causing a sharp rise in inflation and a severe recession from which the country has not yet managed to escape. Read More »

Earlier this month the final deadline arrived for political parties in Brazil to register their candidates for the presidential election in October 2018. The official launch of candidates allows us to discuss more concretely the political forces and players that will be shaping the election. It means that coalitions, alliances, and vice-president choices have taken place. So we asked, what can be said about the first candidates leading the polls? What are the main political forces underlying this election?

The Brazilian political landscape has been extremely polarised since the impeachment of president Dilma Rousseff in 2016. If the left-right dichotomy has recently been considered blurry or outdated, in Brazil one can argue that, due to the impeachment, this dichotomy has a new face, with the coup winners on one extreme and the coup losers on the other.

The nuances between right and left on the political spectrum have largely been overshadowed due to this dichotomy, with one side leading a moral crusade for a clean and corruption-free country and the other side highlighting the ongoing attack on democracy. The political mayhem reached its peak with Lula’s trial and conviction in April, which has led to a great deal of uncertainty over this period (see recent Lula’s Op-Ed from prison in the NYT).

President Termer may have been able to “keep the markets calm in” throughout such political instability, but Brazil’s economic recovery has been weaker than expected, hardships for many families have increased (see IBGE indicators for increases in income inequality, poverty, unemployment and insecurity) and the country has just set a new record for homicides at 63,880 deaths in 2017, with violence against women also increasing. There is a lot at stake in this election.Read More »

Levy and Ortiz’s The Financialization Response to Economic Disequilibria is a timely book. It critiques mainstream economic theory and its limitations in explaining how economic conditions change or the transition from one state of equilibrium to another. Its analyses rely on Keynes, Kalecki, Kaldor, Minsky, Prebish, Furtado, and Marxists such as Luxemburg, Marini and Lapavitsas. Macroeconomic teachers interested in a heterodox approach may benefit from Levy and Ortiz’s book as complementary material with experiences showing the dysfunctionality of the global economy from the specific prism of financial disequilibria.

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The Developing Economics blog takes critical approach to development economics. It seeks to stimulate debate and critical reflection on economic development among academics and practitioners from all relevant fields.